According to a report from the Wall Street Journal''Pakistan has imposed a temporary ban on gold imports to curb a sharp rise in smuggling, which threatens to put pressure on local foreign exchange companies''.
''The country’s finance ministry said in a brief statement that the temporary ban will be effective for 30 days and the move is based on “credible reports” indicating that a steep increase in import taxes on gold in a “neighboring country” has led to a surge in smuggling activity.
While the statement did not name any country, a steep increase in import tax on gold in India last year has led to a sharp rise in smuggling of the precious metal of the precious metal''.
In August,India raised the import tax on gold to 10%, the fifth increase in 20 months, to rein in its ballooning current account deficit. Imports of gold have been one of the biggest strains on the country’s deficit.
While, the Indian government made it harder for dealers to use bank credit to buy the metal, the country’s central bank restricted banks and trading agencies from importing gold on behalf of customers and taking payment later.
These strictures led to a sharp rise in smuggling of gold through India’s airports, sea routes from Sri Lanka and land routes through Nepal and Bangladesh. Gold prices in India spiked and were $150 a troy ounce higher than the global prices in October, the peak buying season.
The value of gold seized from smugglers between April and October was $33.6 million, sharply higher than $17.3 million seized in the financial year to March 31, 2013, according to India’s finance ministry.
While trade is restricted between the two nuclear-armed neighbors–India and Pakistan–smuggling of gold appears to have hit foreign exchange companies in Pakistan, prompting the country’s finance ministry to issue a statement saying that companies had complained that gold smuggling has put “pressure” on the open foreign exchange market.
“The sudden surge in gold imports in Pakistan caused speculative pressure on its currency, just as the massive gold imports had weighed on India’s currency,” Joyce Liu, an investment analyst with Phillip Futures said in a report.
“In fact, the temporary ban on gold imports was targeted at checking speculation of the nation’s currency,” Ms. Liu added.
